Question

On January 1, 2021, Tabitha Designs purchased a patent for $402,000 giving it exclusive rights to manufacture a new type of synthetic clothing. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchased equipment related to production of the new clothing for $158,000. The equipment has a physical life of 10 years, but Tabitha plans to use the equipment only over the patent's service life and then sell it for an estimated $52,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2024 related to the patent and equipment should be: Multiple Choice $104,000. $98,800. $63,500. $40,050.

Answer 1

$63,500

Step-by-step explanation:

Patent

Amortization Charge - Patent = Cost / Useful life

= $402,000/8

= $50,250

Same amount is charged over the useful life, hence 2024 Amortization Charge - Patent will be $50,250

Equipment

Depreciation Expense = (Cost - Salvage Value) / Useful Life

= ($158,000-$52,000) / 8

= $ 13,250

Same amount is charged over the useful life, hence 2024 Depreciation Expense - Equipment will be $ 13,250

Total Expense

Amortization Charge - Patent $50,250

Depreciation Expense - Equipment $ 13,250

Total $63,500